Volatility, investment and disappointment aversion:
This study uncovers a statistically significant negative correlation between volatility and private investment over the 1970-93 period in a set of almost fifty developing countries and provides a possible interpretation of this result by using the disappointment- aversion expected utility framework...
Gespeichert in:
| Hauptverfasser: | , |
|---|---|
| Format: | Buch |
| Sprache: | English |
| Veröffentlicht: |
Cambridge, Mass.
1995
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| Schriftenreihe: | National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series
5386 |
| Schlagworte: | |
| Zusammenfassung: | This study uncovers a statistically significant negative correlation between volatility and private investment over the 1970-93 period in a set of almost fifty developing countries and provides a possible interpretation of this result by using the disappointment- aversion expected utility framework first described by Gul (1991). We consider a number of different volatility measures related to domestic policies or to external factors. As the various volatility measures tend to be positively correlated, we do not claim to identify a unique measure as the dominant source of volatility. Instead, we demonstrate that for a number of different measures, volatility reduces private investment in developing countries. We then show that the disappointment-aversion framework provides a useful way of illustrating the adverse first-order effects of volatility. When agents are disappointment-averse, they put more weight on 'bad' outcomes and less weight on 'good' outcomes than in the standard case. The asymmetric weighting of outcomes introduces additional concavity into the utility function and causes volatility to have significant, negative effects on economic performance. The large, negative effects of increased volatility continue to hold even if the coefficient of relative risk aversion approaches zero (that is, even if the marginal utility of income is constant so that agents are risk neutral in the conventional sense). |
| Beschreibung: | 23 S. graph. Darst. |
Internformat
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| 490 | 1 | |a National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series |v 5386 | |
| 520 | |a This study uncovers a statistically significant negative correlation between volatility and private investment over the 1970-93 period in a set of almost fifty developing countries and provides a possible interpretation of this result by using the disappointment- aversion expected utility framework first described by Gul (1991). We consider a number of different volatility measures related to domestic policies or to external factors. As the various volatility measures tend to be positively correlated, we do not claim to identify a unique measure as the dominant source of volatility. Instead, we demonstrate that for a number of different measures, volatility reduces private investment in developing countries. We then show that the disappointment-aversion framework provides a useful way of illustrating the adverse first-order effects of volatility. When agents are disappointment-averse, they put more weight on 'bad' outcomes and less weight on 'good' outcomes than in the standard case. The asymmetric weighting of outcomes introduces additional concavity into the utility function and causes volatility to have significant, negative effects on economic performance. The large, negative effects of increased volatility continue to hold even if the coefficient of relative risk aversion approaches zero (that is, even if the marginal utility of income is constant so that agents are risk neutral in the conventional sense). | ||
| 650 | 4 | |a Ökonometrisches Modell | |
| 650 | 4 | |a Investments |x Effect of uncertainty on |x Econometric models | |
| 700 | 1 | |a Marion, Nancy Peregrim |d 1949- |e Verfasser |0 (DE-588)124080022 |4 aut | |
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| discipline | Wirtschaftswissenschaften |
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| id | DE-604.BV010749619 |
| illustrated | Illustrated |
| indexdate | 2024-07-09T17:58:14Z |
| institution | BVB |
| language | English |
| oai_aleph_id | oai:aleph.bib-bvb.de:BVB01-007178469 |
| oclc_num | 33992647 |
| open_access_boolean | |
| owner | DE-19 DE-BY-UBM DE-521 DE-11 |
| owner_facet | DE-19 DE-BY-UBM DE-521 DE-11 |
| physical | 23 S. graph. Darst. |
| publishDate | 1995 |
| publishDateSearch | 1995 |
| publishDateSort | 1995 |
| record_format | marc |
| series | National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series |
| series2 | National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series |
| spelling | Aizenman, Joshua 1949- Verfasser (DE-588)124080057 aut Volatility, investment and disappointment aversion Joshua Aizenman ; Nancy Marion Cambridge, Mass. 1995 23 S. graph. Darst. txt rdacontent n rdamedia nc rdacarrier National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series 5386 This study uncovers a statistically significant negative correlation between volatility and private investment over the 1970-93 period in a set of almost fifty developing countries and provides a possible interpretation of this result by using the disappointment- aversion expected utility framework first described by Gul (1991). We consider a number of different volatility measures related to domestic policies or to external factors. As the various volatility measures tend to be positively correlated, we do not claim to identify a unique measure as the dominant source of volatility. Instead, we demonstrate that for a number of different measures, volatility reduces private investment in developing countries. We then show that the disappointment-aversion framework provides a useful way of illustrating the adverse first-order effects of volatility. When agents are disappointment-averse, they put more weight on 'bad' outcomes and less weight on 'good' outcomes than in the standard case. The asymmetric weighting of outcomes introduces additional concavity into the utility function and causes volatility to have significant, negative effects on economic performance. The large, negative effects of increased volatility continue to hold even if the coefficient of relative risk aversion approaches zero (that is, even if the marginal utility of income is constant so that agents are risk neutral in the conventional sense). Ökonometrisches Modell Investments Effect of uncertainty on Econometric models Marion, Nancy Peregrim 1949- Verfasser (DE-588)124080022 aut National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series 5386 (DE-604)BV002801238 5386 |
| spellingShingle | Aizenman, Joshua 1949- Marion, Nancy Peregrim 1949- Volatility, investment and disappointment aversion National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series Ökonometrisches Modell Investments Effect of uncertainty on Econometric models |
| title | Volatility, investment and disappointment aversion |
| title_auth | Volatility, investment and disappointment aversion |
| title_exact_search | Volatility, investment and disappointment aversion |
| title_full | Volatility, investment and disappointment aversion Joshua Aizenman ; Nancy Marion |
| title_fullStr | Volatility, investment and disappointment aversion Joshua Aizenman ; Nancy Marion |
| title_full_unstemmed | Volatility, investment and disappointment aversion Joshua Aizenman ; Nancy Marion |
| title_short | Volatility, investment and disappointment aversion |
| title_sort | volatility investment and disappointment aversion |
| topic | Ökonometrisches Modell Investments Effect of uncertainty on Econometric models |
| topic_facet | Ökonometrisches Modell Investments Effect of uncertainty on Econometric models |
| volume_link | (DE-604)BV002801238 |
| work_keys_str_mv | AT aizenmanjoshua volatilityinvestmentanddisappointmentaversion AT marionnancyperegrim volatilityinvestmentanddisappointmentaversion |